Credit Suisse downgrades Eutelsat but keeps Inmarsat at 'overweight'

Credit Suisse reiterated its 'outperform' rating on Inmarsat while downgrading rival Eutelsat to 'neutral' after its substantial profit warning.

The Swiss bank admitted its positive view over the past 18 months on the outlook for global satellite revenue growth has proved overly optimistic, mainly due an underestimated impact of a weakening global economy on certain regions such as Latin America and Africa and rising competition from Intelsat in LatAm.

"While we still see positive growth trends in certain segments, particularly 4KTV and US government spend, we acknowledge that these trends are coming through slower than we had imagined 18 months ago."

"Having capacity in the right place increasingly important. Going forward exposure to different end users and the allocation of future satellite capacity to different geographies will increasingly drive our satellite stock views, rather than a one size fits all approach."

Eutelsat now looks increasingly exposed to Latam and Africa and applications such as global data services and professional video that are increasingly under pressure.

The more positive rating on Inmarsat was maintained but Credit Suisse analysts cut their target price to 1,060p from 1,186p to reflect the delay to the introduction of key GlobalXpress products and ongoing economic headwinds in maritime.

After a weak quarter, the FTSE 100 group recently cut its 2016 revenue guidance by $50m but maintained its 2018 revenue outlook. Growth concerns have been raised in the market due to tough conditions in maritime that outweigh the pleasing return to growth in government revenue.

Inmarsat also notified of larger agreed Ligado payments out to 2018, now expecting to receive $337m over the three-year period that is around $35-40m per year above consensus.

Third rival SES was also maintained at 'outperform' and its target price also reduced to €25 from €29 as it is seen as having similar revenue exposure to Eutelsat in Latam and Africa, though its exposure to commoditised point-to-point data services is lower than Eutelsat in both regions.